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China’s response to Facebook’s Libra could be ‘Hong Kong style’ cryptocurrency, says ex-central bank governor

  • Former People’s Bank of China governor Zhou Xiaochuan suggests Beijing could delegate issuance of digital currency to commercial entities
  • Speech in Beijing this week shows that China is rethinking its digital currency strategy

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Zhou Xiaochuan served as the governor of the People’s Bank of China (PBOC) for over 15 years until 2018. Photo: EPA
Frank Tangin Beijing

China could learn a lesson for its possible digital currency issuance from the Hong Kong monetary system that allows “commercial entities” to issue banknotes backed by their own private currency assets, former central bank governor Zhou Xiaochuan said.

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Zhou, who served as the governor of the People’s Bank of China (PBOC) for over 15 years until 2018, revealed new thinking about Beijing’s own digital currency plans as the government scrambles to respond to Facebook’s proposed new Libra digital currency.
Zhou, who remains a key backer of China’s sovereign digital currency scheme, suggested that Beijing policymakers could learn from both Facebook and Hong Kong’s models.

“Notes can be issued by the central bank or commercial entities,” read the transcript of Zhou’s speech at a symposium organised by the State Administration of Foreign Exchange in Beijing this week.

Notes can be issued by the central bank or commercial entities
Zhou Xiaochuan

Three Hong Kong banks – Bank of China (Hong Kong), HSBC and Standard Chartered – issue banknotes in their own names and hold US dollar currency reserves to back them. The Hong Kong Monetary Authority, the de facto central bank, ensures that the Hong Kong dollar is always worth around 7.8 to the US dollar. By following this currency peg model, China can avoid the “huge fluctuations” that plagued the early days of cryptocurrency development, Zhou said.

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